Americans stay home to ease credit crunch

We’ve all read the headlines: Food prices are soaring, the gas pumps are threatening us with personal bankruptcy and Canada is edging closer to recession. What does this mean for Canadians looking ahead to their summer holidays?

The good news is that the strongest dollar in decades means many Canadians plan to venture beyond our shores. The bad news is that, amid concerns about their jobs, the credit crunch and the afford-ability of gasoline and food, fewer Americans are planning vacations this summer, an absence that is likely to be felt by Canada’s travel industry.

“The strength of the Canadian dollar is having a strong impact on Canadians’ travel patterns,” says Una O’Leary, director of Canada for Travel Service Network at American Express. “Now that winter is over, we’re seeing more and more customers planning to travel to Europe and the U. S.”

Americans, however, are setting vacation plans aside this year, according to a March survey by the U. S. Conference Board, an independent business and research group. The survey asked 5,000 households about upcoming holiday plans, and found that the percentage of respondents intending to take a vacation over the next six months has fallen to a 30-year low, says Lynn Franco, director of the Conference Board’s Consumer Research Center. “It’s another sign of consumers turning more cost-conscious,” she adds.

The robust loonie makes Canada less appealing to Americans who do intend to travel. “The strong Canadian dollar allows for Canadians’ travel dollar to go further when travelling outside of the country. It also makes Canadian destinations less price-competitive,” says Marta Stelmaschuk, a research associate in Calgary with the Canadian Tourism Research Institute, a division of the Conference Board of Canada.

Though the Canadian economy is showing some signs of slowing, nearly two-thirds, or 62%, of Canadians still plan to holiday between May and September. This is down only slightly from 65% a year ago, Stelmaschuk says, pointing to results in the group’s most recent Travel Exclusive report.

Stuart MacDonald, president of Tripharbour Ltd. in Toronto, is a travel industry veteran who launched Expedia. ca in Canada and says Canadians make travel a priority even when times are tough. “Canadians have always found a way to afford a vacation. It’s something that really matters to them,” he says.

The wild card is the airline sector, where the situation is expected to get worse before it gets better, as the price of fuel keeps rising into the summer season. In Canada, airlines are offsetting the jump in oil prices with fuel surcharges, but for now, competition limits how high they can go: good news for travellers but not so good for the air industry. “The inability of airlines to pass on their higher operational costs to passengers is hurting the industry’s bottom line,” notes the Conference Board of Canada report.

The International Air Transport Association (IATA) recently said that airline passenger traffic was still high, at 76.1% capacity for March, but down from a year before, and the outlook was gloomy. But traffic tells only a part of the story. “Astronomical oil prices are hitting hard,” Giovanni Bisignani, the IATA’s director general and CEO, says in a news

release. “And the buffer of an expanding [U. S.] economy has disappeared. The fortunes of the industry have taken a major turn for the worse.”

Fuel prices are also affecting the hotel industry in the

U. S., as Americans cut back on travel, says Bobby Bowers, senior vice-president of operations with Smith Travel Research in Hendersonville, Tenn. “With high fuel prices and a situation where people are being hit with resets in their mortgages, they don’t have as much income to travel with. Over the summer, if people don’t cancel their trips completely, they may travel closer to home or take shorter holidays.”

Canadians heading to the U. S. may benefit as hotels drop prices somewhat, Bowers says, but don’t look for deep discounts in major markets. “Speaking broadly, you may see rates drop a bit to encourage people on the leisure side. I don’t know that you’ll see huge drops, especially not in New York, Chicago and Dallas, because there is demand. The U. S. dollar has dropped so much, it’s already a bargain for foreign travellers.”

One area of leisure travel that is projecting continued growth is cruising. The Cruise Lines International Association estimates that 12.8-million people will take a cruise this year, up 1.6% from 2007. Part of the strength in the cruise market is based on demographics, says MacDonald, whose newly launched Web site, tripharbour.ca, provides an online forum for researching and booking cruises. Baby Boomers who are considered to be in their prime travel years, 55 to 70, are partial to cruising, he says. “In Canada, cruising is growing at 9% a year. Part of that is that the average age of a cruiser is 47 to 50. It’s a Boomer-friendly category.”

Like the airline industry, the cruise business is feeling the impact of the jump in oil prices and has implemented a fuel surcharge, which is quoted at the time of booking. Nonetheless, cruises remain appealing to Canadians because they are a cost-effective way to see places such as Europe, MacDonald says.

“If you want to take advantage of the strong Canadian dollar and go to another part of the world, cruises are a great way to do that. They’re priced in Canadian or U. S. dollars and your accommodation and meals are all paid for upfront. So today you are sightseeing in Barcelona and tomorrow you’re in Lisbon, and yet you’re not paying hundreds of euros a night to stay there.”